UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant X Filed by a party other than the Registrant
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Check the appropriate box:
X Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Sec.240.14a-12
CRESTED CORP.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
CRESTED CORP.
MINERALS PLAZA, GLEN L. LARSEN BUILDING
877 NORTH 8TH WEST
RIVERTON, WYOMING 82501
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, AUGUST 10, 2004
We are pleased to give you notice of our Annual Meeting of Shareholders:
Date: , 2004
--------------------
Time: 10:00 AM MST
Place: 877 North 8th West, Riverton, Wyoming 82501
Purpose: - Elect five directors to serve staggered terms, in three
Classes, until the next applicable annual meeting of
shareholders, and until their successors have been duly
elected or appointed and qualified;
- Amend the articles of incorporation to authorize an increase
of the number of shares of common stock authorized to be
issued, from the current 20,000,000 shares, to 100,000,000
shares.
- Amend the articles of incorporation to provide that
directors may only be removed by vote of the shareholders
for cause.
- Adopt a qualified incentive stock option plan and reserve
2,000,000 shares of common stock for issuance on exercise of
options which may be granted in the future, provided that at
such time as options may be outstanding for 2,000,000
shares, the number of reserved shares shall be automatically
increased to always equal not more than 20 percent of the
issued and outstanding shares of the company.
- Ratify appointment of the independent auditors; and
- Transact any other business that may properly come before
the meeting.
Record Date: July 7, 2004. The stock transfer books will not be closed.
Your vote is important. Whether or not you plan to attend the meeting,
please complete, sign and date the enclosed proxy card and return it promptly in
the enclosed envelope. We appreciate your cooperation.
By Order of the Board of Directors
Dated: July , 2004 Daniel P. Svilar, Secretary
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INFORMATION ABOUT ATTENDING THE ANNUAL MEETING
Only shareholders of record on July 7, 2004 may vote at the meeting. Only
shareholders of record, and beneficial owners on the record date, may attend the
meeting. If you plan to attend the meeting, please bring personal identification
and proof of ownership if your shares are held in "street name" (i.e., your
shares are held of record by brokers, banks or other institutions). Proof of
ownership means a letter or statement from your broker showing your ownership of
shares on the record date.
A list of shareholders entitled to vote at the Meeting will be available
for inspection by any record shareholder at the Company's principal executive
offices in Riverton, Wyoming. The inspection period will begin no later than ten
days before the Meeting.
CRESTED CORP.
MINERALS PLAZA, GLEN L. LARSEN BUILDING
877 NORTH 8TH WEST
RIVERTON, WYOMING 82501
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, AUGUST 10, 2004
The Annual Report to Shareholders, including audited financial statements
for the fiscal year ended December 31, 2003, is mailed to shareholders together
with these proxy materials on or about July 16, 2004. The proxy materials
consist of this proxy statement and notice of annual meeting, the Annual Report,
and the Audit Committee Certification, and the Nominating Committee Charter.
This proxy statement is provided in connection with a solicitation of
proxies by the board of directors of Crested Corp. for use at the annual meeting
of shareholders (the "meeting") to be held on Tuesday, August 10, 2004 and at
any adjournments of the meeting.
WHO CAN VOTE
If you held any shares of common stock on the record date (July 7, 2004),
then you will be entitled to vote at the meeting. If you held stock in your own
name, you may vote directly. If you owned stock beneficially but in the record
name (street name) of an institution, you may instruct the record holder how to
vote when the record holder contacts you about voting and gives you the proxy
materials.
Common Stock Outstanding on the Record Date: 17,133,098 Shares
QUORUM AND VOTING RIGHTS
QUORUM. A quorum for the meeting will exist if a majority of the voting
power of the shareholders is present at the meeting, in person or represented by
properly executed proxy delivered to us prior to the meeting. Shares of common
stock present at the meeting that abstain from voting, or that are the subject
of broker non-votes, will be counted as present for determining a quorum. A
broker non-vote occurs when a nominee holding stock in street name or otherwise
for a beneficial owner does not vote on a particular matter because the nominee
does not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
VOTING RIGHTS. You are entitled to one vote for each share of Crested Corp.
common stock you hold.
- DIRECTORS. That number of candidates equaling the number of directors to
be elected, having the highest number of votes cast in favor of their election
are elected. If you abstain from voting, your shares will not be counted for or
against any director.
- AMENDMENTS TO ARTICLES OF INCORPORATION. The proposals to amend the
articles of incorporation to increase the authorized common stock, and to allow
removal of directors by shareholder vote only for cause, each will be approved
if the holders of a majority of the issued and outstanding shares of common
stock vote in favor of each respective amendment.
- ADOPTION OF THE INCENTIVE STOCK OPTION PLAN. The incentive stock option
plan will be approved if the number of votes cast in favor exceed the number of
votes opposed, in accordance with Colorado law.
- RATIFICATION OF AUDIT FIRM. Ratification of the appointment of
independent auditors will be approved if the number of votes cast in favor
exceed the number of votes opposed, in accordance with Colorado law.
Any other matter which properly comes before the meeting would be approved
if the number of votes cast in favor exceed the number of votes opposed, unless
Colorado law requires a different approval ratio.
Abstentions and broker non-votes will have no effect on the election of
directors. Abstentions as to all other matters which properly may come before
the meeting will be counted as votes against those matters. Broker non-votes as
to all other matters will not be counted as votes for or against, and will not
be included in calculating the number of votes necessary for approval of these
matters.
HOW YOUR PROXY WILL BE VOTED; RECOMMENDATION OF THE BOARD
The board of directors is soliciting a proxy in the enclosed form to
provide you with the opportunity to vote on all matters scheduled to come before
the meeting, whether or not you attend in person.
The board of directors recommends you vote for the director nominees; for
the separate amendments to the articles of incorporation to increase the number
of authorized common shares, and to allow shareholders to remove directors only
for cause; for the incentive stock option plan; and for ratification of
management's re-appointment of the audit firm.
GRANTING YOUR PROXY
If you sign properly and return the enclosed form of proxy, your shares
will be voted as you specify. If you make no specifications, your proxy will be
voted in favor of the four proposals.
We expect no matters to be presented for action at the meeting other than
the items described in this proxy statement. However, in accordance with SEC
rule 14a-4(c)(1) the enclosed proxy will confer discretionary authority with
respect to any other matter that may properly come before the meeting, including
any matter of which we did not have notice at least 45 days before the date of
mailing proxy materials for last year's meeting.
REVOKING YOUR PROXY
If you submit a proxy, you may revoke it later or submit a revised proxy at
any time before it is voted. You also may attend the meeting in person and vote
by ballot, which would cancel any proxy you previously submitted.
PROXY SOLICITATION
We will pay all expenses of soliciting proxies for the meeting. In addition
to solicitations by mail, arrangements have been made for brokers and nominees
to send proxy materials to their principals, and we will reimburse them for
their reasonable expenses. We have not hired a solicitation firm for the
meeting. Our employees and directors will solicit proxies by telephone or other
means, if necessary; these people will not be paid for these services.
REQUIREMENT AND DEADLINES FOR SHAREHOLDERS TO SUBMIT PROXY PROPOSALS
Generally, we will hold the annual meeting on the first Friday of each June
(June 3 in 2005). Under the rules of the SEC, if a shareholder wants us to
include a proposal in our proxy statement and form of proxy for presentation at
our Annual Meeting of Shareholders to be held in June of 2005, the proposal must
be received by us in writing at least 150 calendar days in advance of the
meeting date (which would be 120 days in advance of the mailing date), at
Crested Corp., 877 North 8th West, Riverton, Wyoming 82501; Attention: Daniel P.
Svilar, Secretary.
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CORPORATE GOVERNANCE
Meetings of the Board. The board of directors, which held eleven formal
meetings during the year ended December 31, 2003, has primary responsibility for
directing management of the business. The board currently consists of five
members. The board conferred informally on several other occasions during the
year. From time to time the directors also approve various matters by consent
minutes without conducting formal meetings.
ATTENDANCE BY DIRECTORS AT ANNUAL MEETINGS. Although most of the directors
attend annual meetings of shareholders, we do not require such attendance. two
directors attended the annual meeting in June 2003, but 2 members were available
by telephone. The directors attended the regular meeting of the board of
directors following the 2003 annual meeting.
COMMUNICATIONS FROM SECURITY HOLDERS TO THE BOARD OF DIRECTORS. Security
holders may send communications to the board of directors, by addressing their
communications to Keith G. Larsen, director, or John L. Larsen, director, at 877
N. 8th W., Riverton, Wyoming 82501. The independent directors have established a
process for collecting and organizing communications from security holders.
Pursuant to this process, Keith and John Larsen will determine which of the
communications address matters of substance and should therefore be considered
by all directors, and will send those selected communications to all the
directors for their consideration.
AUDIT COMMITTEE. To provide effective direction and review of fiscal
matters, the board has established an audit committee. Its current members are
John L. Larsen and Michael D. Zwickl. Mr. Zwickl is an independent director
under Rule 4200(a)(15) of the National Association of Securities Dealers, Inc.'s
listing standards. Mr. Larsen is not independent because he is an officer of the
company. The audit committee has the responsibility of reviewing our financial
statements, exercising general oversight of the integrity and reliability of our
accounting and financial reporting practices, and monitoring the effectiveness
of our internal control systems. The audit committee also recommends selection
of an auditing firm and exercises general oversight of the activities of our
independent auditors, principal financial and accounting officers and employees
and related matters.
The audit committee has reviewed our financial statements for the year
ended December 31, 2003 and discussed them with management. The committee also
discussed with the independent audit firm the various matters required to be so
discussed in SAS 61 (Codification of Statements on Auditing Standards, AU 380).
The committee received the written disclosure and the letter from the
independent audit firm as required by Independence Standards Board Standard No.
1 (Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committee), and the committee discussed with the audit firm their
independence. Based on the foregoing, the audit committee recommended to the
board of directors that the audited financial statements be included in our
Annual Report on Form 10-K which was filed with the Securities and Exchange
Commission on March 30, 2004.
The audit committee has adopted a written charter, a copy of which was
included in the proxy statement for the June 2003 annual meeting (a copy will be
next included with proxy materials for the 2006 annual meeting).
EXECUTIVE COMMITTEE. The executive committee members are John L. Larsen and
Daniel P. Svilar. This committee helps implement the board of directors' overall
directives as necessary. This committee usually does not conduct formal meetings
(none in 2003).
MANAGEMENT COST APPORTIONMENT COMMITTEE, established by USE and Crested in
1982, reviews the apportionment of costs between USE and Crested. John L. Larsen
and Robert Scott Lorimer are members of this committee.
COMPENSATION COMMITTEE. The company has not established a compensation
committee.
NOMINATING COMMITTEE AND NOMINATING PROCESS. When needed as determined by
the board of directors, the nominating committee considers and recommends to the
board of directors individuals who may be suitable to be nominated to serve as
directors. Harold F. Herron and Michael D. Zwickl are the nominating committee
members. Mr.
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Zwickl is independent under criteria established by the NASD. Mr. Herron is not
independent because he is an officer of the company.
The nominating committee has adopted a written charter regarding the
company's director nomination process. This charter is not available on the
company's website, but is included with this proxy statement. Copies also are
available on request (without charge) addressed to Daniel P. Svilar, Secretary,
Crested Corp., 877 North 8th West, Riverton, Wyoming 82501.
Pursuant to its charter, the nominating committee has adopted a policy for
consideration of any director candidates recommended by security holders, and
may (or may not) recommend to the board of directors that candidate(s) be put on
an Annual Meeting election slate and identified in the company's proxy
statement, if:
- At least 150 calendar days before the meeting date, the security
holder requests in writing that the nominating committee consider an
individual for inclusion as a director nominee in the next proxy
statement for an Annual Meeting. The security holder must identify the
individual and provide background information about the individual
sufficient for the committee to evaluate the suggested nominee's
credentials. Such requests should be addressed to Keith G. Larsen,
director, or John L. Larsen, Chief Executive Officer, who will forward
the requests to the nominating committee.
- The candidate meets certain specific minimum qualifications:
Substantial experience in top or mid-level management (or serving as a
director) of public mineral exploration companies, with particular
emphasis on understanding and evaluating mineral properties for either
financing, exploration and development, or joint venturing with
industry partners; contacts with mining or oil and gas industry
companies to develop strategic partnerships or investments with the
company; and the ability to understand and analyze complex financial
statements. A security holder-recommended candidate also will have to
possess a good business and personal background, which the nominating
committee will independently verify. These same categories of
qualifications will be used by the nominating committee in considering
any nominee candidate, whether recommended by a security holder, an
officer, or another director.
- Although all security holder-recommended candidates, and all
candidates recommended by another director or by an officer, will be
evaluated by the nominating committee in good faith, the full board of
directors, by majority vote, will make the final decision whether to
include an individual on an Annual Meeting election slate and
identified in the proxy statement for that Annual Meeting.
- For the 2004 Annual Meeting, or for the next Annual Meeting, the
nominating committee has not received a request from any security
holder for consideration of a nominee candidate.
Three of the director nominees are incumbent directors, re-elected by the
shareholders in 2003, and now standing for re-election. Keith G. Larsen and
Harold F. Herron were appointed by the board of directors in 2003.
PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY
The following table sets forth, as of the record date for this Annual
Meeting, certain information about the ownership of shares of common stock of
the company. Unless otherwise noted, the listed record holder exercises sole
voting and dispositive powers, held by each director of U.S. Energy Corp., and
by all officers and directors of U.S. Energy Corp., and by Mark J. Larsen (an
officer and director of Rocky Mountain Gas, Inc., a subsidiary) over the shares
reported as beneficially owned, excluding the shares subject to forfeiture.
Voting and dispositive powers for certain shares are shared by or more of the
listed holders. Such shares are reported opposite each holder having a shared
interest therein, but are only included once in the shareholdings of the group
presented in the table.
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AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------
NAME OF VOTING RIGHTS DISPOSITIVE RIGHTS TOTAL PERCENT
------------------- -------------------
BENEFICIAL OWNER SOLE SHARED SOLE SHARED BENEFICIAL OWNERSHIP OF CLASS(1)
- ---------------------------- ------- ---------- ------- ---------- -------------------- -----------
John L. Larsen(2) -0- 12,184,733 -0- 12,184,733 12,184,733 71.1%
Keith G. Larsen(2) -0- 12,184,733 -0- 12,184,733 12,184,733 71.1%
Harold F. Herron(3) 3,466 12,184,733 6,932 12,184,733 12,188,199 71.1%
Don C. Anderson(4) -0- 12,024,733 -0- 12,024,733 12,024,733 70.2%
H. Russell Fraser(4) -0- 12,024,733 -0- 12,024,733 12,024,733 70.2%
Michael T. Anderson (4) -0- 12,024,733 -0- 12,024,733 12,024,733 70.2%
Daniel P. Svilar(5) 191,850 12,184,733 191,850 12,184,733 12,376,583 72.2%
R. Scott Lorimer(6) -0- 12,184,733 -0- 12,184,733 12,199,733 71.2%
Mark J. Larsen -0- -0- -0- -0- -0-
All officers and
directors of USE as a group
(nine persons)(7) 195,316 12,184,733 195,316 12,184,733 12,395,049 72.3%
(1) Percent of class is computed by dividing the number of shares
beneficially owned plus any options held by the reporting person, by the number
of shares outstanding plus the shares underlying options held by that person.
(2) Consists of 12,024,733 Crested shares held by USE, 100,000 shares held
by SGMC and 60,000 shares held by Plateau Resources Limited ("Plateau"), with
respect to which shared voting and dispositive powers are exercised as a
director with the other directors of those companies.
3) Consists of 3,466 directly held shares over which Mr. Herron exercises
sole voting and investment powers, and the 12,024,733 Crested shares held by
USE, 100,000 held by SGMC and 60,000 shares held by Plateau, with respect to
which shared voting and dispositive powers are exercised as a USE, SGMC and
Plateau director with the other directors of those companies.
(4) Consists of 12,024,733 Crested shares held by USE which shared voting
and dispositive powers are exercised as a director with the other directors of
USE.
(5) Consists of 191,850 directly held shares, over which Mr. Svilar
exercises sole voting and dispositive powers. Also includes 12,024,733 Crested
shares held by USE, 100,000 held by SGMC and 60,000 shares held by Plateau, with
respect to which shared voting and dispositive powers are exercised as a USE,
SGMC and Plateau directors with the other directors of those companies.
(6) Consists of 12,024,733 Crested shares held by USE, 100,000 held by SGMC
and 60,000 shares held by Plateau. Total Beneficial Ownership includes 15,000
shares which are subject to forfeiture. None of the company's directors exercise
any voting or dispositive powers over these shares. Such powers are exercised by
the Crested non-employee director.
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(7) Sole voting and dispositive rights are exercised over 198,782 directly
held shares. Shared voting and dispositive rights are exercised over 12,024,733
shares held by USE, 100,000 shares held by SGMC and 60,000 shares held by
Plateau. The total beneficial ownership includes 15,000 shares held by an
employee which are subject to forfeiture. None of the company's directors
exercise any voting or dispositive powers over these shares. Such powers are
exercised by the Crested non-employee director.
PRINCIPAL HOLDERS OF VOTING SECURITIES OF THE COMPANY'S PARENT
U.S. ENERGY CORP.
The following is a list of all record holders who, as of the record date
for this Annual Meeting, owned more than 5% of the outstanding shares of common
stock of U.S. Energy Corp, and the outstanding common stock beneficially held by
each director and nominee, and by all officers and directors as a group, as
reported in filings with the SEC, or as otherwise known to us. This list
includes shares held by Mark J. Larsen, an officer and director of a subsidiary,
but not an officer or director of USE. Except as otherwise noted, each holder
exercises the sole voting and dispositive powers over the shares listed opposite
the holder's name, excluding the shares subject to forfeiture and those held in
ESOP accounts established for the employee's benefit. Dispositive powers over
the forfeitable shares held by employees who are not officers and a non-employee
director ("Forfeitable Shares") are shared by the USE board of directors. Voting
and dispositive powers over forfeitable shares held by the five executive
officers of USE (the "Officers' Forfeitable Shares") are shared by the USE
non-employee directors (Messrs. Don Anderson, Mike Anderson, and Russell
Fraser). The ESOP Trustees (John L. Larsen and Harold F. Herron) exercise voting
powers over non-allocated ESOP shares and dispositive powers over all ESOP
shares. It should be noted that voting and dispositive powers over certain
shares are shared by one or more of the listed holders. Such securities are
reported opposite each holder having a shared interest therein.
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AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------
NAME AND ADDRESS VOTING RIGHTS DISPOSITIVE RIGHTS TOTAL PERCENT
-------------------- -------------------
OF BENEFICIAL OWNER SOLE SHARED SOLE SHARED BENEFICIAL OWNERSHIP OF CLASS(1)
- ------------------------- --------- --------- --------- --------- -------------------- -----------
John L. Larsen*(2) 926,594 1,011,076 926,594 1,379,776 2,428,890 17.8%
201 Hill Street
Riverton, WY 82501
Keith G. Larsen*(3) 670,960 820,415 628,174 835,595 1,492,695 10.9%
4045 Valley Green Circle
Riverton, WY 82501
Harold F. Herron*(4) 253,674 973,226 235,625 1,337,426 1,607,870 11.8%
877 N. 8th W.
Riverton, WY 82501
Don C. Anderson*(5) 89,807 420,720 89,807 443,400 533,207 3.9%
P. O. Box 680
Midway, UT 84049
H. Russell Fraser*(6) 68,252 422,020 68,252 444,700 512,952 3.8%
3453 Southfork Road
Cody, WY 82414
Michael T. Anderson*(7) -0- 420,720 -0- 443,400 443,400 3.2%
933 Main Street
Lander, WY 82520
Daniel P. Svilar**(8) 501,147 818,915 501,147 817,915 1,431,742 10.5%
580 S. Indiana Street
Hudson, WY 82515
R. Scott Lorimer**(9) 469,963 812,915 418,906 812,915 1,357,998 10.2%
11 Korrel Court
Riverton, WY 82501
Mark J. Larsen**(10) 317,488 4,600 286,184 -0- 317,488 2.3%
513 Westchester Circle
Riverton, WY 82501
All officers and
directors as a group
(nine persons)(11) 3,297,885 1,455,696 3,154,689 1,806,796 5,104,681 37.4%
* Director
** Officer (Mr. Mark Larsen is president of the company's subsidiary Rocky
Mountain Gas, Inc., but he is not an officer of the Company or of USE).
(1) Percent of class is computed by dividing the number of shares
beneficially owned plus any options held by the reporting person, by the number
of shares outstanding plus the shares underlying options held by that person.
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(2) Mr. John L. Larsen exercises sole voting powers over 100,000 directly
owned shares, 316,513 shares held in a family limited partnership of which Mr.
Larsen is the operating manager, 500 shares held in a street name account for
his benefit, 58,031 shares held in an Individual Retirement Account ("IRA")
established for his benefit, and 493,900 shares underlying options. He exercises
shared voting rights over 155,811 shares held by the ESOP, which have not been
allocated to accounts established for specific beneficiaries, and shares held by
corporations of which Mr. Larsen is a director consisting of 512,359 shares held
by Crested Corp. ("Crested"), 125,556 shares held by Plateau Resources Limited
("Plateau"), and 175,000 shares held by Sutter Gold Mining Company ("SGMC"). Mr.
Larsen shares the voting rights over such shares with the other directors of
those corporations. Mr. Larsen shares voting powers over the unallocated ESOP
shares in his capacity as an ESOP Trustee with the other ESOP Trustees. Shares
over which sole dispositive rights are exercised consist of 100,000 directly
owned shares, 316,513 shares in a family limited partnership, 500 shares held in
street name, 58,031 shares held in his IRA, and the 493,900 shares underlying
options. Shared dispositive powers are exercised over 501,831 shares held by the
ESOP, 22,680 Forfeitable Shares, 512,359 shares held by Crested, 125,556 shares
held by Plateau and 175,000 shares held by SGMC. The shares listed under "Total
Beneficial Ownership" also include 145,200 Officers' Forfeitable Shares.
(3) Mr. Keith Larsen exercises sole voting rights over 26,774 directly held
shares, 7,500 shares as custodian over shares held for his minor children under
the Wyoming Uniform Transfers to Minors Act (the "Custodial Shares"), 42,786
shares held in an ESOP account established for his benefit, 593,900 shares
underlying options. He exercises shared voting rights over 7,500 shares held
directly by his minor children and shares held by corporations of which Mr.
Larsen is a director consisting of 512,359 shares held by Crested, 125,556
shares held by Plateau, and 175,000 shares held by Sutter. Mr. Larsen shares the
voting rights over such shares with the other directors of those corporations.
Mr. Keith Larsen exercises sole dispositive rights over 26,774 directly held
shares, 7,500 Custodial shares, and 593,900 shares underlying options. He
exercises shared dispositive rights over 22,680 Forfeitable Shares 512,359
shares held by Crested, 125,556 shares held by Plateau and 175,000 shares held
by SGMC. The shares listed under "Total Beneficial Ownership" also include 8,820
Officers' Forfeitable Shares.
(4) Mr. Herron exercises sole voting powers over 50,425 directly owned
shares, 11,000 shares held in an IRA established for his benefit, 4,500
Custodial Shares, 169,700 shares underlying options, and 18,049 shares held in
the ESOP account established for his benefit. Shared voting powers are exercised
over 4,500 Custodial shares, 155,811 shares held by the ESOP which have not been
allocated to accounts established for specific beneficiaries, 512,359 shares
held by Crested, 125,556 shares held by Plateau, and 175,000 shares held by
Sutter. Sole dispositive powers are exercised over 50,425 directly held shares,
11,000 shares held in his IRA, 4,500 Custodial Shares and 169,700 shares
underlying options. Mr. Herron exercises shared dispositive rights over 501,831
shares held by the ESOP, 512,359 shares held by Crested, 125,556 shares held by
Plateau and 175,000 shares held by SGMC, and 22,680 Forfeitable Shares. Mr.
Herron exercises shared dispositive and voting powers over the shares held by
Crested, Sutter and Plateau as a director of those companies with the other
directors of those companies and over the ESOP shares in his capacity as an ESOP
Trustee with the other ESOP Trustees. The shares listed under "Total Beneficial
Ownership" also include 39,450 Officers' Forfeitable Shares.
(5) Mr. Don Anderson exercises sole voting powers over 34,252 directly held
shares, 3,055 shares held in an IRA established for his benefit, and 52,500
shares underlying options. He exercises shared voting powers over 420,720
Officers' Forfeitable Shares. Mr. Anderson exercises dispositive power over
34,252 directly held shares, 3,055 IRA shares, and 52,500 shares underlying his
options. He exercises shared dispositive powers over the 22,680 Forfeitable
Shares and 420,720 Officers' Forfeitable Shares.
(6) Mr. Fraser exercises sole voting rights over 10,752 directly held
shares, 4,000 shares held in an IRA for his benefit, 1,000 shares held in a
street name account for his benefit and 52,500 shares underlying options. He
exercises shared voting rights over 1,300 shares held directly by his wife and
420,720 Officers' Forfeitable Shares. Mr. Fraser exercises sole dispositive
rights over 10,752 directly held shares, 4,000 IRA shares, 1,000 held in a
street name account for his benefit and 52,500 shares underlying his options. He
exercises shared dispositive powers over 1,300 wife's shares, 22,680 Forfeitable
Shares, and 420,720 Officers' Forfeitable Shares.
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(7) Mr. Mike Anderson exercises shared voting powers over 420,720 Officers'
Forfeitable Shares. He exercises shared dispositive powers over the 22,680
Forfeitable Shares and 420,720 Officers' Forfeitable Shares.
(8) Mr. Svilar exercises sole voting powers over 77,439 directly owned
shares, 2,125 shares held in joint tenancy with his wife, 26,053 shares held in
an IRA established for his benefit, 630 shares held in a street name account
established for his benefit, 1,000 Custodial Shares, and 393,900 shares
underlying options. He exercises shared voting over 512,359 shares held by
Crested 125,556 shares held by Plateau, and 175,000 shares held by Sutter, 1,000
Custodial shares and 5,000 shares held by a private corporation of which he is a
director and officer. He exercises sole dispositive power over 77,439 directly
held shares, 2,125 joint tenancy shares, 26,053 IRA shares, 630 street name
shares, 1,000 Custodial Shares, and 393,900 shares underlying his options. Mr.
Svilar exercises shared dispositive rights over 512,359 shares held by Crested,
125,556 shares held by Plateau and 175,000 shares held by SGMC and 5,000 shares
held by a private corporation of which he is a director and officer. The shares
listed under "Total Beneficial Ownership" also include 112,680 Officers'
Forfeitable Shares.
(9) Mr. Lorimer exercises sole voting rights over 66,673 directly held
shares, 51,057 shares held in the ESOP account established for his benefit, and
352,233 shares underlying options. He exercises shared voting over 512,359
shares held by Crested, 125,556 shares held by Plateau, and 175,000 shares held
by Sutter. He exercises sole dispositive rights over 66,673 directly held
shares, and 352,233 shares underlying options. Mr. Lorimer exercises shared
dispositive rights over 512,359 shares held by Crested, 125,556 shares held by
Plateau and 175,000 shares held by SGMC. The shares listed under "Total
Beneficial Ownership" also include 75,120 Officers' Forfeitable Shares.
(10) Mr. Mark Larsen is listed in the table because he is president of
Rocky Mountain Gas, Inc. ("RMG"), a subsidiary of the company through which the
company conducts its primary business. He exercises sole voting over 15,554
shares held directly, 4,600 Custodial Shares, 31,304 shares held in the ESOP
account established for his benefit, and 266,030 shares underlying options. He
exercises shared voting rights over 4,600 Custodial shares. Mr. Larsen exercises
sole dispositive rights over 15,554 shares held directly, 4,600 Custodial
shares, and 266,030 shares underlying his options.
(11) The group exercises sole voting rights over 529,880 directly held
shares, 109,175 shares held in joint tenancy, 94,791 shares held in IRAs, 1,130
shares held in street name, 17,600 Custodial Shares, 143,196 ESOP shares and
2,374,663 shares underlying options. Shared voting rights are exercised over
43,650 shares held in IRA accounts for spouses, 17,600 shares held by minor
children, 420,720 Officers' Forfeitable Shares, 155,811 shares held in the ESOP
which are not allocated to plan participants, 512,359 shares held by Crested,
125,556 shares held by Plateau, 175,000 shares held by SGMC, and 5,000 shares
held by private corporations. The sole dispositive shares consist of 529,880
directly held shares, 109,175 shares held in joint tenancy, 94,791 shares held
in IRAs, 1,130 shares held in street name, 17,600 Custodial Shares, and
2,374,663 shares underlying options. The group exercises shared dispositive
rights over 43,650 shares held in IRA accounts for spouses, 501,831 shares held
in the ESOP, 512,359 shares held by Crested, 125,556 shares held by Plateau,
175,000 shares held by SGMC, 5,000 shares held by private corporations, 22,680
Forfeitable Shares, and 420,720 Officers' Forfeitable Shares.
PROPOSAL 1: ELECTION OF DIRECTORS
At prior Annual Meetings, directors have been elected for one year terms.
Now, as permitted by Colorado law and pursuant to the Company's articles of
incorporation, the board of directors has now divided the directors into three
classes (often referred to as "staggered terms"): Directors in Class 1
(presently Daniel P. Svilar and Michael D. Zwickl) are nominated to be elected
for a term expiring at the annual meeting in 2005; directors in Class 2
(presently Keith G. Larsen and Harold F. Herron) are nominated to be elected for
a term expiring at the annual meeting in 2006; and the director in Class 3
(presently John L. Larsen) is nominated to be elected for a term expiring at the
annual meeting in 2007. Class 1 will not be applicable after the 2004 Annual
Meeting.
If the number of directors should be increased by the board of directors at
any time after the Annual Meeting in 2004, the persons appointed to the new
positions will serve until the next meeting of shareholders. If those persons
are then nominated for election at the next meeting of shareholders, those
nominees will be allocated as equally as possible
9
among Classes 2 and 3, by the board of directors. The board of directors has no
present intention of increasing the number of directors.
The board of directors has implemented staggered terms for directors to
provide continuity of management. In addition, if Proposal 3, to amend the
articles of incorporation to permit shareholders to remove a director only for
cause, is approved at the Annual Meeting, the staggered terms will provide some
protection for the rights of minority shareholders in the event a hostile
takeover is launched. See Proposal 3.
The nominees for directors (all incumbents) for election at the Annual Meeting
are:
Other Meeting at
Name positions with Director which term
and age with the company since will expire
- ---------------------- -------------------- -------- -----------
John L. Larsen (73) Co-Chairman 1975 2005
and CEO (a)(b)(c)
Daniel P. Svilar (75) Secretary (a) 1980 2005
Keith G. Larsen (45) Co-Chairman 2003 2006
Harold F. Herron (51) President (d) 2003 2006
Michael D. Zwickl (56) Assistant Secretary 1984 2007
(b)(d)
(a) Member of the executive committee.
(b) Member of the audit committee.
(c) Trustee of the USE Employee Stock Ownership Plan (the "ESOP").
(d) Member of the nominating committee.
Executive officers of the company are elected by the board at the annual
directors' meetings, which follow each Annual Shareholders' Meeting, to serve
until the officer's successor has been duly elected and qualified, or until
death, resignation or removal by the board of directors.
BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS OF DIRECTORS AND NOMINEES.
JOHN L. LARSEN has been principally employed as an officer and director of
USE and the company for more than the past five years. Mr. Larsen is the
Chairman of the Board and Chief Executive Officer of USE, and is a Co-Chairman
and a director of the company. Mr. Larsen is Chief Executive Officer and
Chairman of the board of directors of Plateau Resources, Limited and President
and a director of Sutter Gold Mining Company, and he is a director of Rocky
Mountain Gas, Inc. and Yellow Stone Fuels Corp.
KEITH G. LARSEN has been principally employed by the USE and Crested for
more than the past five years. He has been a director of USE, its President and
Chief Operating Officer since November 25, 1997. Mr. Larsen is also the Chief
Executive Officer and a director of Rocky Mountain Gas, Inc., and was appointed
a director of the company by the board of directors in 2003.
HAROLD F. HERRON has been the Vice-President of USE since January 1989, and
now is Senior Vice President of USE. Mr. Herron is President and a director of
Plateau, Chief Executive Officer and a director of Sutter Gold Mining Company,
and a director of Rocky Mountain Gas, Inc. Mr. Herron was the President of The
Brunton Company, which was a wholly-owned subsidiary until Brunton was sold in
February 1996. Mr. Herron received an M.B.A. degree from
10
the University of Wyoming after receiving a B.S. degree in Business
Administration from the University of Nebraska at Omaha. Mr. Herron was
appointed a director, and the President of the Company by the board of directors
in 2003.
MICHAEL D. ZWICKL has been engaged in the private practice of law at
Casper, Wyoming for more than the past five years. Mr. Zwickl received a
B.S.M.E. degree from the University of Wyoming in 1969. He received a J.D.
degree from the University of Wyoming in 1975 and was admitted to the practice
of law in Wyoming during that year. Mr. Zwickl is director and president of
NUPEC Resources, Inc. which has registered equity securities under the Exchange
Act.
DANIEL P. SVILAR has been General Counsel for USE and Crested for more than
the past five years. He also is Secretary of USE. His positions of General
Counsel to, and as officers of the companies, are at the will of the board of
directors. There are no understandings between Mr. Svilar and any other person
pursuant to which he was named as officer or General Counsel. He has no family
relationships with any of the other executive officers or directors of USE or
Crested.
FILING OF REPORTS UNDER SECTION 16(A)
The Company has conducted a review of Forms 3, 4 and 5 (as amended) and
certain written representations of persons filing reports with the SEC under
Section 16(a) of the Exchange Act. Based solely upon a review of those reports
and written representations, the company believes no director, executive
officer, beneficial owner of more than ten percent of the common stock or other
person who was otherwise subject to Section 16, failed to file such reports on a
timely basis related to transactions occurring in 2003.
INFORMATION CONCERNING THE EXECUTIVE OFFICER WHO IS NOT A DIRECTOR
The following information is provided pursuant to Item 401 of Reg. S-K,
regarding the only executive officer of the company who is not also a director.
ROBERT SCOTT LORIMER, age 53, has been and Chief Accounting Officer for
both USE and Crested for more than the past five years. Mr. Lorimer also has
been Chief Financial Officer for both these companies since May 25, 1991, their
Treasurer since December 14, 1990, and Vice President Finance since April 1998.
He serves at the will of the board of directors. There are no understandings
between Mr. Lorimer and any other person, pursuant to which he was named as an
officer, and he has no family relationship with any of the other executive
officers or directors of USE or Crested.
EXECUTIVE COMPENSATION
Under a Management Agreement dated August 1, 1981, USE and Crested share
certain general and administrative expenses, including compensation of the
officers and directors of the companies (but excluding directors' fees) which
have been paid through the USECC Joint Venture ("USECC"). Substantially all the
work efforts of the officers of USE and Crested are devoted to the business of
both companies.
All USECC personnel are USE employees, in order to utilize USE's ESOP as an
employee benefit mechanism. The company charges USECC for the direct and
indirect costs of its employees for time spent on USECC matters, and USECC
charges one-half of that amount to each of Crested and USE.
The following table sets forth the compensation paid to the USE Chief
Executive Officer, and the four USE executive officers, and Mark J. Larsen,
President of RMG, in 2001, 2002 (and the seven months ended December 31, 2002),
and 2003. USE (and the Company) changed their fiscal year in 2002 from the
(former) period ending May 31, to the calendar fiscal year ending December 31.
11
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and ompen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)(1)
John L. Larsen 2003 $174,800 $25,300(2) $-0- $117,200(6) -0- $-0- $22,700
CEO and Chairman 2002* 109,500 7,500(3) -0- -0- 97,000(9) -0- 11,700
2002 152,000 18,000(4) -0- 78,000(7) 100,000(9) -0- 17,000
2001 153,000 4,300(5) -0- 107,000(7) 184,400(10) -0- 15,700
Keith G. Larsen 2003 $156,000 $40,000(2) $-0- $ 62,000(6) -0- $-0- $22,700
President and 2002* 90,000 7,200(3) -0- -0- 97,000(9) -0- 9,700
COO 2002 152,300 17,700(4) -0- -0- 100,000(9) -0- 17,000
2001 153,900 3,600(5) -0- -0- 309,400(10) -0- 15,700
Daniel P. Svilar 2003 $149,400 $24,700(2) $-0- $103,400(6) -0- $-0- $22,700
General Counsel 2002* 86,200 6,900(3) -0- -0- 97,000(9) -0- 9,300
and Secretary 2002 149,400 17,400(4) -0- 58,500(7) 100,000(9) -0- 16,700
2001 140,400 4,000(5) -0- 80,250(7) 121,900(10) -0- 14,400
Harold F. Herron 2003 $106,200 $65,800(2) $-0- $ 89,600(6) -0- $-0- $22,700
Sr. Vice President 2002* 60,500 27,800(8) -0- -0- 97,000(9) -0- 8,800
2002 99,500 53,600(8) -0- 39,000 (7) 100,000(9) -0- 15,300
2001 96,400 40,800(8) -0- 53,500(7) 96,900(10) -0- 13,700
R. Scott Lorimer 2003 $135,700 $24,000(2) $-0- $ 89,600(6) -0- $-0- $22,700
Treasurer 2002* 83,500 6,800(3) -0- -0- 97,000(9) -0- 9,000
and CFO 2002 141,000 17,000(4) -0- 39,000 (7) 100,000(9) -0- 15,800
2001 136,900 3,900(5) -0- 53,500(7) 121,900(10) -0- 14,100
Mark J. Larsen 2003** $120,000 $33,300(2) $-0- $ -0- -0- $-0- $17,400
President of RMG
* For seven months June 1, 2002 to December 31, 2002
** Mr. Larsen became President of RMG on October 15, 2003. Compensation
paid to Mr. Larsen as an employee of USE (not an officer) before that date is
not included in the table.
(1) Dollar values for ESOP contributions.
(2) Consists of a bonus granted to officers and employees after the
conclusion of the formation of Pinnacle Gas and an additional bonus granted
to officers and employees after the successful release of a portion of the
cash bond for reclamation of the Shootaring Canyon uranium mill and a
Christmas Bonus. Mr. Herron was instrumental in growing The Brunton Company
to the level that it could be sold to a third party. For his efforts USE
granted Mr. Herron a bonus which is paid out over several years, ending in
August 2004. See note (8) for data on payments prior to 2003. A break down
of the bonuses paid to the officers of USE during the year ended December
31, 2003 is as follows:
Pinnacle Shootaring Brunton Christmas
Name Bonus Bonus Bonus Bonus
- -------------------- ------- ------- ------- -------
John L. Larsen $10,000 $ 7,500 $ $7,800
Keith G. Larsen 25,000 7,500 7,500
Daniel P. Svilar 10,000 7,500 7,200
Harold F. Herron 10,000 12,500 36,900 6,400
Robert Scott Lorimer 10,000 7,500 6,500
Mark J. Larsen 20,000 7,500 5,800
12
(3) Consists of Christmas bonus amounts granted to employees during the
seven month period ended December 31, 2002.
(4) Consists of $10,000 bonus granted to officers and employees after the
conclusion of a coalbed methane gas transition, and a Christmas bonus
granted to employees. The Christmas bonus amounts granted for John L.
Larsen, Keith G. Larsen, Daniel P. Svilar, Harold F. Herron and Robert
Scott Lorimer during the fiscal year ended May 31, 2002 were $8,000,
$7,700, $7,400, $6,700 and $7,000, respectively.
(5) Consists of a Christmas bonus paid in fiscal 2001.
(6) Consists 20,000 shares issued to each officer pursuant to USE's 2001
Stock Compensation Plan. Under the terms of the plan each officer is to
receive 10,000 shares of USE's common stock or some other portion as
approved by the USE Compensation Committee. There were no issuances of
shares under the plan during the years ended May 31, 2001 and 2002 or the
seven months ended December 31, 2002. The issuance of these shares to the
officers was therefore retroactive for the funding of the shares due each
officer for 2002 and 2003. USE has agreed under the terms of the plan to
pay all taxes due. The officer has agreed not to sell these shares to the
market or pledge them on obligations until after his (i) retirement; (ii)
total disability or (iii) in the case of the death of the officer his
estate may sell the shares of stock. Also includes shares issued under the
1996 stock award program multiplied by $3.50 (the closing market price on
the issue date for the year ending December 31, 2003). These shares are
subject to forfeiture on termination of employment, except for retirement,
death or disability. If the company were to pay a stock dividend, dividends
would be paid on these shares. The shares issued to each officer were
15,774, 11,830, 7887 and 7887 shares to John L. Larsen, Daniel P. Svilar,
Harold F. Herron and Robert Scott Lorimer, respectively. This is the final
funding under USE's 2001 Stock Compensation Plan.
(7) Consists of shares issued under the 1996 stock award program multiplied
by $5.35 and $3.90 (the closing market price on the issue dates for former
fiscal years 2001 and 2002 respectively) These shares are subject to
forfeiture on termination of employment, except for retirement, death or
disability. If USE were to pay a stock dividend, dividends would be paid on
these shares. The following table lists the number of shares issued to each
executive each year.
Number of Shares
------------------
Name 2001 2002
---------------- ------ ------
John L. Larsen 20,000 20,000
Keith G. Larsen -0- -0-
Daniel P. Svilar 15,000 15,000
Harold F. Herron 10,000 10,000
R. Scott Lorimer 10,000 10,000
(8) Mr. Herron was instrumental in growing The Brunton Company to the level
that it could be sold to a third party. For his efforts, USE granted Mr.
Herron a bonus which is paid out over several years, ending in August 2004.
The amount of the bonus paid was $21,200 $36,900, and $36,900 for the seven
months ended December 31, 2002, and the fiscal years ended May 31, 2002 and
2001, respectively. The total bonus paid to Mr. Herron also includes a
bonus of $6,600 for the seven months ended December 31, 2002, and $6,700
and $3,900 for fiscal years ended May 31, 2002 and 2001, respectively, and
a $10,000 bonus paid in 2002 to officers and employees after the conclusion
of a coalbed methane gas transaction.
(9) Stock options granted pursuant to USE's 2001 Incentive Stock Option
Plan. See details of the options under "Grants to Executive Officers
(Qualified and Nonqualified)" below.
(10) Stock options granted pursuant to USE's 1998 Incentive Stock Option
Plan. See details of the options under "Grants to Executive Officers
(Qualified and Nonqualified)" below.
13
EXECUTIVE COMPENSATION PLANS AND EMPLOYMENT AGREEMENTS
USE has adopted a plan to pay the dependants of Messrs. J. Larsen and
Svilar amounts equivalent to the salaries they are receiving at the time of
their death, for a period of one year after death, and reduced amounts for up to
five years thereafter. The amounts to be paid in such subsequent years have not
yet been established, but would be established by the boards of directors of USE
and the company.
Mr. Svilar has an employment agreement with USE and the Company, which
provides for an annual salary in excess of $100,000, with the condition that Mr.
Svilar pay an unspecified amount of expenses incurred by him on behalf of the
company and its affiliates. In the event Mr. Svilar's employment is
involuntarily terminated, he is to receive an amount equal to the salary he was
being paid at termination, for a year. If he should voluntarily terminate his
employment, USE and Crested will pay him that salary for nine months thereafter.
The foregoing is in addition to Mr. Svilar's Executive Severance and Non-Compete
Agreement with USE (see below).
In fiscal 1992, USE signed Executive Severance and Non-Compete Agreements
with Messrs. John L. Larsen, Svilar and Lorimer, providing for payment to such
person upon termination of his employment with USE, occurring within three years
after a change in control of the company, of an amount equal to (i) severance
pay in an amount equal to three times the average annual compensation over the
prior five taxable years ending before change in control, (ii) legal fees and
expenses incurred by such persons as a result of termination, and (iii) the
difference between market value of securities issuable on exercise of vested
options to purchase securities in USE, and the options' exercise price. These
Agreements also provide that for the three years following termination, the
terminated individual will not compete with USE in most of the western United
States in regards to exploration and development activities for uranium,
molybdenum, silver or gold. During fiscal 2001, USE signed similar Agreements
with Keith Larsen, Mark Larsen, Richard Larsen, and Harold Herron. For such
non-compete covenant, such persons will be paid monthly over a three year period
an agreed amount for the value of such covenants. These Agreements are intended
to benefit the company's shareholders, by enabling such persons to negotiate
with a hostile takeover offeror and assist the board of directors concerning the
fairness of a takeover, without the distraction of possible tenure insecurity
following a change in control.
The Company and USE provide all employees with certain forms of insurance
coverage, including life and health insurance, with the exception of Messrs.
John L. Larsen and Daniel P. Svilar. The company and USE reimburse Messrs. John
Larsen and Svilar for their medicare supplement premiums. The health insurance
plan does not discriminate in favor of executive employees; life insurance of
$200,000 is provided to each member of upper management (which includes all
persons in the compensation table), $100,000 of such coverage is provided to
middle-management employees, and $90,000 of such coverage is provided to other
employees.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). An ESOP has been adopted to
encourage ownership of the common stock by employees, and to provide a source of
retirement income to them. The ESOP is a combination stock bonus plan and money
purchase pension plan. It is expected that the ESOP will continue to invest
primarily in the common stock of USE. Messrs. J. Larsen and Herron are the
trustees of the ESOP.
Contributions to the stock bonus plan portion of the ESOP are discretionary
and are limited to a maximum of 15% of the covered employees' compensation for
each accounting year. Contributions to the money purchase pension portion of the
ESOP are mandatory (fixed at ten percent of the compensation of covered
employees for each year), are not dependent upon profits or the presence of
accumulated earnings, and may be made in cash or shares of USE's common stock.
USE made a contribution of 76,794 shares to the ESOP for the twelve months
ended December 31, 2003, all of which were contributed under the money purchase
pension plan. At the time the shares were contributed, the market price was
$3.10 per share, for a total contribution with a market value of $236,400 (which
has been funded by the Company). The company and USE each are responsible for
one-half of that amount. 37,204 of the shares were allocated to the ESOP
accounts of the executive officers of USE and the president of Rocky Mountain
Gas, Inc. Additionally, 5,166 shares were allocated to the ESOP accounts of
these same individuals from ESOP shares forfeited by terminated employees who
were not fully vested.
14
Employee interests in the ESOP are earned pursuant to a seven year vesting
schedule; after three years of service, the employee is vested to 20% of the
ESOP account, and thereafter at 20% per year. Any portion which is not vested is
forfeited upon termination of employment, other than by retirement, disability,
or death.
The maximum loan outstanding during the twelve months ended December 31,
2003 under a loan arrangement between USE and the ESOP was $927,013 at December
31, 2003. Interest owed by the ESOP was not booked by USE or the company. The
company pays one-half of the amounts contributed to the ESOP by USE. Because the
loans are expected to be repaid by contributions to the ESOP, the company may be
considered to indirectly owe one-half of the loan amounts to USE.
401(K) PLAN. In first quarter 2004, USE established a traditional qualified
401(k) plan for employees, by which USE will match $0.50 for each $1.00
contributed by participating employees, up to an annual $4,000 per employee
maximum contribution by USE. Through March 31, 2004, USE has contributed $3,382
to this plan. Plan eligibility and vesting rules are uniform for all employees,
including executive officers.
1998 INCENTIVE STOCK OPTION PLAN. USE's 1998 Incentive Stock Option Plan
("1998 ISOP") reserved an aggregate of 2,750,000 shares of common stock for
issuance upon exercise of options granted thereunder.
Options expire no later than ten years from the date of grant, and upon
termination of employment for cause. Subject to the ten year maximum period,
upon termination, unless terminated for cause, options are exercisable for three
months or in the case of retirement, disability or death, for one year.
Options on 1,494,146 shares are outstanding. No more options will be issued
under the 1998 ISOP.
2001 INCENTIVE STOCK OPTION PLAN ("2001 ISOP"). The U.S. Energy 2001 ISOP
was approved at the 2001 Annual Meeting of Shareholders, and provides for the
issuance of options to purchase up to 3.0 million shares of USE common stock;
the options are intended to qualify under section 422 of the Internal Revenue
Code. Options are issued at exercise prices equal to (or for holders of 10% or
more of the outstanding stock at the time, 110% of) market price on grant dates,
and would vest (become exercisable) at various times as determined by the
executive committee and approved by the board of directors. All options are
exercisable for cash, or through other means as determined by the executive
committee and approved by the board of directors, in accordance with similar
plans of public companies.
In 2003, no options were granted, and previously granted options on 275,621
shares were exercised.
At the Annual Meeting of USE Shareholders held in June 2004, the
shareholders approved an amendment to the 2001 ISOP, such that the number of
shares authorized always shall equal 20% of the total issued and outstanding
shares of common stock.
15
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
OPTION/SAR VALUES AT 12/31/03
The following table shows options on U.S. Energy Corp. common stock
exercised during the twelve months ended December 31, 2003, options exercisable
at December 31, 2003, and options exercisable and the dollar values for
in-the-money options, at December 31, 2003 (closing market price on that date
was $2.98).
(a) (b) (c) (d) (e) (f)
Value of
In Twelve Months Ended 12/31/03 Number of Number of In-the-Money
-------------------------------
Shares Options/SARS Options/SARs Options/SARs
Acquired Value at 12/31/03 at 12/31/03 at 12/31/03
Name on Exercise (#) Realized($) Exercisable Exercisable Exercisable
- ------------------- -------------------------------- -------------- ------------- -------------
John L. Larsen, -0- -0- 34,782 34,782 $ 3,652 (1)
CEO -0- -0- 77,718 77,718 $ 76,164 (2)
-0- -0- 184,400 184,400 $ 106,952 (3)
-0- -0- 100,000 100,000 $ (92,000)(4)
-0- -0- 97,000 97,000 $ 70,810 (5)
Keith G. Larsen -0- -0- 34,782 34,782 $ 3,652 (1)
President -0- -0- 52,718 52,718 $ 51,664 (2)
-0- -0- 309,400 309,400 $ 179,452 (3)
-0- -0- 100,000 100,000 $ (92,000)(4)
-0- -0- 97,000 97,000 $ 70,810 (5)
Harold F. Herron, -0- -0- 34,782 17,391 $ 1,826 (1)
Sr. Vice President -0- -0- 40,218 20,109 $ 19,707 (2)
-0- -0- 67,400 33,700 $ 19,546 (3)
-0- -0- 100,000 50,000 $ (46,000)(4)
-0- -0- 97,000 48,500 $ 35,405 (5)
Daniel P. Svilar -0- -0- 34,782 34,782 $ 3,652 (1)
Secretary -0- -0- 40,218 40,218 $ 39,414 (2)
-0- -0- 121,900 121,900 $ 70,702 (3)
-0- -0- 100,000 100,000 $ (92,000)(4)
-0- -0- 97,000 97,000 $ 70,810 (5)
R. Scott Lorimer -0- -0- 34,782 34,782 $ 3,652 (1)
Treasurer -0- -0- 40,218 40,218 $ 39,414 (2)
-0- -0- 80,233 80,233 $ 46,535 (3)
-0- -0- 100,000 100,000 $ (92,000)(4)
-0- -0- 97,000 97,000 $ 70,810 (5)
Mark J. Larsen -0- -0- 27,782 27,782 $ 2,917 (1)
President of RMG -0- -0- -0- -0- $ -0- (2)
10,000 $ 27,800 (6) 51,248 41,248 $ 23,924 (3)
-0- -0- 100,000 100,000 $ (92,000)(4)
-0- -0- 97,000 97,000 $ 70,810 (5)
(1) Equal to $2.98, the closing market price on December 31, 2003,
less $2.00 per share option exercise price, multiplied by all shares
exercisable.
(2) Equal to $2.98, the closing market price on December 31, 2003,
less $2.875 per share option exercise price, multiplied by all shares
exercisable.
16
(3) Equal to $2.98, the closing market price on December 31, 2003,
less $2.40 per share option exercise price, multiplied by all shares
exercisable.
(4) Equal to $2.98, the closing market price on December 31, 2003,
less $3.90 per share option exercise price, multiplied by all shares
exercisable.
(5) Equal to $2.98, the closing market price on December 31, 2003,
less $2.25 per share option exercise price, multiplied by all shares
exercisable.
(6) Equal to $5.18, the closing market price on the date of exercise,
less $2.40 per share option exercise price, multiplied by the number of
options exercised. No shares acquired on exercise of these options have
been sold.
1996 Stock Award Program. USE had an annual incentive compensation
arrangement for the issuance of up to 67,000 shares of common stock each year
(from 1997 through 2002) to executive officers of USE, in amounts determined
each year based on earnings of USE for the prior fiscal. A total of 392,536
shares were issued under this program. USE's compensation committee did not
award any shares under this program during the seven months ended December 31,
2002; 43,378 shares were issued in 2003 to close out the program.
One-half of the compensation expense under the program was and is the
responsibility of Crested.
Each allocation of shares was issued in the name of the officer, and is
earned out (vested) over 5 years, at the rate of 20% as of May 31 of each year
following the date of issue. However, none of the vested shares become available
to or come under the control of the officer until termination of employment by
retirement, death or disability. Upon termination, the share certificates will
be released to the officer; until termination, the certificates are held by the
Treasurer of USE. Voting rights are exercised over the shares by the
non-employee directors of USE; dividends or other distributions with respect to
the shares will be held by the Treasurer for the benefit of the officers.
The number of shares awarded each year out of such 67,000 shares aggregate
limit was determined by the compensation committee.
2001 STOCK COMPENSATION PLAN. The USE shareholders approved the 2001 Stock
Compensation Plan (the "plan") at the 2001 Annual Shareholders Meeting.
The plan has an initial term of seven years, with up to 10,000 shares of
common stock to be issued in January of each year to six individuals (five
officers of U.S. Energy Corp: John L. Larsen, Keith G. Larsen, Robert Scott
Lorimer, Harold F. Herron, Daniel P. Svilar, and Mark J. Larsen, president and a
director of Rocky Mountain Gas, Inc.). The number of shares to be issued in any
year is determined by the compensation committee and approved by the independent
directors, taking into account our public stock prices at the date of grant and
during the prior calendar year, USE's financial condition and business
prospects, and other factors deemed appropriate. USE pays the income taxes owed
by recipients as a result of receipt of the stock.
The stock recipients have agreed not to sell or transfer such shares during
their employment with the company. As of December 31, 2003, 100,000 shares had
been granted under the Plan (20,000 shares each to John L. Larsen, Keith G.
Larsen, Robert Scott Lorimer, Harold F. Herron, and Daniel P. Svilar). No shares
were issued under the Plan in 2001 or 2002. Mark J. Larsen will be first
eligible to receive shares under the Plan in 2005.
The 2001 Stock Compensation Plan is now the sole mechanism for compensating
management with stock, however options may be granted to management and others
under the USE 2001 ISOP. This plan is designed to reward executives with equity,
and encourage them to increase their ownership of USE and not sell their shares
in the market.
If the Crested shareholders approve the incentive stock option plan at the
2004 Annual Meeting, and if in the future the company pursues a different line
of business (see Proposal 2), Crested's plan would be the sole means of
providing equity compensation to the officers of Crested for service to Crested.
17
DIRECTORS' FEES AND OTHER COMPENSATION
The company pays non-employee directors a fee of $150 per meeting attended.
All directors are reimbursed for expenses incurred with attending meetings.
Non-employee directors are compensated for services with $400 per month,
payable each year by the issue of shares of Crested common stock based on the
closing stock market price as of January 15.
A Management Cost Apportionment Committee was established by USE and the
company in 1982, for the purpose of reviewing the apportionment of costs between
USE and the company. John L Larsen and Scott Lorimer are members of this
Committee. The Committee had no meetings during 2003.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Debt Owed by a Director. In the early 1990s, Harold F. Herron, an officer
and director, had been living in and caring for a house owned by U.S. Energy
Corp. In fiscal 1995, Mr. Herron purchased the house for $260,000 (equal to
appraised value), and was reimbursed by USE for $22,830 of leasehold
improvements he had made to the property. USE accepted a promissory note for
$112,170 of the purchase price, with 7% annual interest; a payment schedule was
entered into and Mr. Herron is current in his payments on the note. This note
was a nonrecourse note secured by 30,000 shares of USE's common stock owned by
Mr. Herron. At December 31, 2003, he owed $90,300 on the note. During 2003, he
gave up 5,000 shares of the collateral to reduce the debt. The collateral now
consists of 10,000 shares of USE.
Family Employment. Three of John L. Larsen's sons and one grandson are
employed by USECC or subsidiaries of the company. Collectively, Mr. Larsen and
his family members received $854,000 in total compensation (including salary,
bonuses, restricted stock awards, options and other compensation) for services
during the twelve months ended December 31, 2003. Not included is 2003
compensation paid to two sons-in-law who ceased working for USECC or
subsidiaries of the company (including Peter Schoonmaker, who is now employed by
Pinnacle Gas Resources, Inc., a minority-owned subsidiary).
TRANSACTIONS INVOLVING USECC AND CRESTED. USE and the Company conduct most
activities through their equally-owned joint venture USECC. From time to time
USE and the company advance funds to or make payments on behalf of USECC, which
create intercompany debt. The party extending funds is subsequently reimbursed
by the other venturer. Crested owed USE $9,403,300 at December 31, 2003.
PROPOSAL 2: AMENDMENT TO ARTICLES OF INCORPORATION (INCREASE AUTHORIZED COMMON
STOCK)
Present Capital Structure. The Company's articles of incorporation
authorize the issuance of 20,000,000 shares of common stock ($0.001 par value),
and 100,000 shares of preferred stock ($0.001 par value). As of the record date
for the Annual Meeting, 17,133,098 shares of common stock are issued and
outstanding. No shares of preferred stock have been issued.
Shares of common stock may be issued by authority of the board of
directors, without shareholder approval, for such consideration and on such
other terms as the board determines are appropriate. One or more series of
preferred stock may be created by authority of the board of directors, without
shareholder approval, to establish for a series a dividend rate, voting rights,
liquidation preference, redemption or conversion rights, and other features. No
series of preferred stock has been created.
The Company is a Colorado corporation.
PROPOSED CAPITAL STRUCTURE. The board of directors recommends that the
shareholders approve an amendment to the articles of incorporation, to increase
the number of shares of authorized common stock to 100,000,000. This
18
amendment would not change the current authority of the board of directors to
issue shares. No change in the authorized number of preferred shares would be
made.
REASON FOR THIS PROPOSAL
The Company has been a subsidiary of, and run its business activities
parallel to, U.S. Energy Corp. for many years. USE owns 71.5% of the company's
stock, and the company owed USE $9,403,300 at December 31, 2003. Without funds
to operate its share of the business activities conducted with USE, this
indebtedness has been steadily increasing for more than the past 10 years, as
USE has paid for the Company's general and administrative expenses and operating
expenses.
We expect the Company's debt to USE will increase up to the time when the
litigation with Nukem is resolved. See the Annual Report for details on this
litigation. If the litigation is resolved in favor of USE and the Company, the
aggregate cash award to both companies could exceed $20,000,000. In that event,
it is likely the Company will pay all, or a significant portion of its debt to
USE, and at the same time negotiate with USE to reorganize the company's
business to sell a significant portion of its mineral assets and investments in
co-owned subsidiaries to USE (for stock in USE, for cash, for USE assuming the
Company's share of mining properties reclamation costs, or a combination of the
preceding).
Even if the Nukem litigation is not resolved in favor of the companies, or
if favorably resolved but the cash award is less than $20,000,000, the Company
intends to negotiate with USE to reorganize its business.
The objective will be to establish the Company as a stand alone entity. USE
will continue to be a major shareholder, but the Company will conduct, and be
financially responsible for its own business activities. Future business could
continue to be in the minerals and oil and gas industries, or in other
activities. The Company may, or may not, participate with USE in future
projects.
There are no agreements or understandings in principle between the Company
and USE about how the Company's business might be reorganized, and the companies
have not initiated discussions about a reorganization. Any reorganization will
be subject to approval by the boards of directors and shareholders of both
companies.
As a first step in the strategy to make the Company a stand alone entity,
the board of directors has determined that the authorized common stock should be
increased. In advance of (or following) a reorganization of its business with
USE, the additional stock may be used to raise capital for the Company's
independent business activities, or to acquire properties or operating
companies. However, there are no current plans, agreements or understandings
between the Company and any one to issue stock for these or other purposes.
PROPOSAL 3: AMENDMENT TO ARTICLES OF INCORPORATION (PERMIT REMOVAL OF DIRECTORS
BY SHAREHOLDER VOTE ONLY FOR CAUSE)
PAST AND PRESENT LAW
When the Company was incorporated in 1970, Colorado law permitted removal
of directors by shareholder vote, with or without cause. The Colorado Business
Corporation Act, enacted in 1994, allows a company's shareholders to remove
directors with, or without cause, but only for cause if a provision to that
effect is contained in the company's articles of incorporation. "For cause" is
not defined in the Colorado Business Corporation Act, but circumstances which
might constitute grounds for shareholders to seek removal might include (but not
be limited to) evidence of a director's breaching his fiduciary duties to the
company or its shareholders, or events of a personal nature or involving
business activities outside the Company which have rendered the person unfit for
continued service as a director.
Under Colorado law, a shareholder meeting for any purpose, including
removal of one or more directors, may be called by the board of directors, and
shall be called by the company at the demand of the holders of shares
representing at least 10% of all votes entitled to be cast on any issue proposed
to be considered at the meeting.
19
REASON FOR THIS PROPOSAL
If the articles of incorporation are not amended as proposed, then, at such
time (if ever) as the Company has issued stock to raise capital in such amounts
as results in the decrease of U.S. Energy Corp.'s ownership of the Company to
less than 50%, and an unsolicited hostile takeover was commenced against the
Company, the hostile bidders could acquire enough stock to call a special
shareholders' meeting to vote on the removal of all directors immediately, and
install their own directors. These new directors might not be mindful of the
best interests of minority shareholders.
If Proposal 3 is approved, hostile bidders would be unable to call a
special meeting to vote on removal of directors unless there is evidence of
grounds for removal for cause.
Proposal 3 is not intended to thwart a change in control of the company,
but is intended to encourage persons who might be interested in acquiring
control of the company to negotiate with the board of directors, who would be
bound by fiduciary duty to obtain the best terms possible for all shareholders.
We have no knowledge of any contemplated unsolicited hostile takeover bid for
the Company.
PROPOSAL 4: INCENTIVE STOCK OPTION PLAN
The board of directors has adopted an incentive stock option plan, and
recommends that the shareholders approve the plan. If approved by the
shareholders, options issued under the plan will be qualified for the tax
advantages available for option plans under section 422 of the Internal Revenue
Code. No options have been issued under this plan to date, and there are no
current plans to issue options.
2,000,000 shares of common stock will be reserved initially under the plan.
At such time as options have been granted to purchase 2,000,000 shares, the
number of shares available for issuance under additional options will be
automatically increased to be a number equal to 20% of the issued and
outstanding shares of common stock of the Company.
Options will be issued from time to time by the board of directors only to
officers and other employees, at an exercise price equal to market price of the
stock at issue date. Generally, options will have a maximum term of 10 years,
vest at times determined by the board of directors, and be exercisable only
while the grantee is employed by the company (and for 90 days thereafter if
terminated other than for cause). If the grantee dies, the option would remain
exercisable for 12 months thereafter.
PROPOSAL 5: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors seeks shareholder ratification of the board's
appointment of Grant Thornton LLP, certified public accountants, to act as the
auditors of our financial statements for the fiscal year ending December 31,
2004. The audit committee has recommended that the board retain this auditing
firm for 2004. Grant Thornton audited our financial statements for the fiscal
years ended May 31, 2002 and 2001, the seven month period ended December 31,
2002, and the calendar year ended December 31, 2003. The board has not
determined what action, if any, would be taken should the appointment of Grant
Thornton not be ratified at the meeting.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Grant Thornton LLP billed us for services as follows for the year ended
December 31, 2003, the seven months ended December 31, 2002, and the year ended
May 31, 2002. Amounts and percentages reflect billings received after December
31 of those periods.
20
Year Ended Seven Months Ended Year Ended
December 31, 2003 December 31, 2002 May 31, 2002
Audit Fees(a) $ 21,600 $ 22,200 $ 46,000
81% 90% 86%
Audit-Related Fees(b) $ -- $ -- $ --
-- -- --
Tax Fees(c) $ 5,200 $ 2,400 $ 7,200
19% 10% 14%
All Other Fees(d): $ -- $ -- $ --
-- -- --
(a) Includes fees for audit of the annual financial statements and review
of quarterly financial information filed with the Securities and Exchange
Commission and service provided for statutory and regulatory filings.
(b) For assurance and related services that were reasonably related to the
performance of the audit or review of the financial statements, which fees are
not included in the Audit Fees category. The company had no Audit-Related Fees
for the periods covered.
(c) For tax compliance, tax advice, and tax planning services, relating to
any and all federal and state tax returns as necessary for the periods covered.
(d) For services and products provided by the principal accountant other
than services included in (a) through (c) above. No such services and products
in this category were provided in the periods covered.
Our audit committee approves the terms of engagement before we engage Grant
Thornton for audit and non-audit services, except as to engagements for services
outside the scope of the original terms, in which instances the services have
been provided pursuant to pre-approval policies and procedures, established by
the audit committee. These pre-approval policies and procedures are detailed as
to the category of service and the audit committee is kept informed of each
service provided. These policies and procedures, and the work performed pursuant
thereto, do not include any delegation to management of the audit committee's
responsibilities under the Securities Exchange Act of 1934.
The services provided for Audit-Related Fees, Tax Fees and All Other Fees
were delivered pursuant to pre-approval policies and procedures established by
the audit committee.
Copies of Our Form 10-K
Promptly upon receiving a request from any shareholder, without charge, we
will send to the requester a copy of our Annual Report on Form 10-K for the year
ended December 31, 2003, with exhibits, as filed with the Securities and
Exchange Commission. Please address your request to Daniel P. Svilar, Secretary,
at Crested Corp., 877 North 8th West, Riverton, WY 82501, telephone (307)
856-9271. You also may fax your request to him at 307.857.3050.
EXHIBITS
Exhibit No. Description of Exhibit
99.1 Certification by Audit Committee
99.2 Nominating Committee Charter
21
PROXY CRESTED CORP. PROXY
KNOW ALL PERSONS: That the undersigned shareholder of Crested Corp. (the
"Company") in the amount noted below, hereby constitutes and appoints Messrs.
John L. Larsen and Harold F. Herron, or either of them with full power of
substitution, as attorneys and proxies, to appear, attend and vote all of the
shares of stock standing in the name of the undersigned at the Annual Meeting of
the Company's shareholders to be held at the Company's Offices at 877 North 8th
West, Riverton, Wyoming 82501 on Tuesday, August 10, 2004 at 10:00 a.m., local
time, or at any adjournments thereof upon the following:
THE PROXIES WILL VOTE: (1) AS YOU SPECIFY BELOW; (2) AS THE BOARD OF
DIRECTORS RECOMMENDS WHERE YOU DO NOT SPECIFY YOUR VOTE ON A MATTER LISTED ON
THIS CARD, AND (3) AS THE PROXIES DECIDE ON ANY OTHER MATTER.
The Board of Directors Recommends You Vote in Favor of the Director
Nominees, in Favor of the Two Amendments to the Articles of Incorporation, in
Favor of the Incentive Stock Option Plan, and in Favor of Ratifying the
Selection of Independent Auditors.
If you wish to vote on all matters as the Board of Director recommends,
please sign, date and return this card. If you wish to vote on items
individually, please also mark the appropriate boxes below.
INSTRUCTION: Mark only one box on each line.
1. Election of Directors:
Daniel P. Svilar (term expires 2005) FOR ABSTAIN
--- ---
Michael D. Zwickl (term expires 2005) FOR ABSTAIN
--- ---
Harold F. Herron (term expires 2006) FOR ABSTAIN
--- ---
Keith G. Larsen (term expires 2006) FOR ABSTAIN
--- ---
John L. Larsen (term expires 2007) FOR ABSTAIN
--- ---
2. Amendment of articles of incorporation, to increase the number of shares
of common stock authorized to 100,000,000.
FOR AGAINST ABSTAIN
--- --- ---
3. Amendment of articles of incorporation, to allow shareholders to remove
directors only for cause.
FOR AGAINST ABSTAIN
--- --- ---
4. Incentive Stock Option Plan.
FOR AGAINST ABSTAIN
--- --- ---
5. Ratification of appointment of Grant Thornton LLP.
FOR AGAINST ABSTAIN
--- --- ---
PROXY CRESTED CORP. PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS PROVIDED ON THE REVERSE SIDE.
Sign your name exactly as it appears on the mailing label below. It is important
to return this Proxy properly signed in order to exercise your right to vote, if
you do not attend in person. When signing as an attorney, executor,
administrator, trustee, guardian, corporate officer, etc., indicate your full
title as such.
----------------------------------------
(Sign on this line - joint holders may
sign appropriately)
-------------------- ------------------
(Date) (Number of Shares)
PLEASE NOTE: Please sign, date and place
this Proxy in the enclosed
self-addressed, postage prepaid envelope
and deposit it in the mail as soon as
possible.
Please check if you are planning to
attend the meeting
---
If the address on the mailing label is
not correct, please provide the correct
address in the following space.
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